Advocaten / Avocats / Lawyers

Tuesday, 08 June 2021

Tax Treaty Making in Belgium. Well regulated?

The fact that Belgium has a wide network of double taxation conventions (‘tax treaties’) is positive for the Belgian economy and Belgian taxpayers. Each new tax treaty is welcomed. But there is no reason to cheer until it actually enters into force and effectively provides relief from double taxation. And, by and large, that entry into force takes several years. Why that is, whether Belgium could do better and above all, how it can do better, are questions that deserve an answer.

In a federal state such as Belgium, powers are indeed shared between the central, federal level and its component states. This also applies to taxing powers and the power to conclude international treaties. Both divisions of power come together in tax treaties and it is this crossroads that forms the core of Rik Smet's doctoral thesis. Belgian regions and communities have an explicit and far-reaching power to conclude treaties themselves. In fact, no other federal country attributes such extensive powers to conclude treaties to its component states. In particular the regions also have an extensive competence to tax. For example, they play an important role in personal income tax and may exclusively levy certain taxes, including gift and inheritance taxes and property tax.

Knowing, for example, that the international mobility of both companies and individuals is increasing exponentially, it is not surprising that double taxation is lurking around the corner in more and more situations. For that reason, tax treaties have been and are being concluded, but the question arises whether the policy level that may levy the specific tax may also regulate the avoidance of international double taxation. In other words, may Belgian regions, German Länder, Canadian provinces or Swiss cantons conclude tax treaties? Rik’s research shows that in an international context, the Belgian regions - and communities - have the most far-reaching treaty making powers. Moreover, from a legal-theoretical point of view, this is applaudable and an example for other federal states, which do not fare as well in this respect.

An important part of this dissertation is devoted to how the Belgian tax treaties come into being. Not only in theory, but also in practice. Because they are so-called 'mixed' treaties, whereby the regions and communities are also involved in their establishment and a certain agreed procedure has to be followed. But at least equally important is the fact that, for the first time, a thorough analysis has been made of which articles of the OECD model tax convention actually concern the tax competences of the regions and communities. For what exactly is regulated in those tax treaties and how does it relate to the Belgian internal division of the competence to tax? That analysis leads to some remarkable conclusions, which are relevant both for tax practice and for the future.

In his thesis, Rik identifies a number of possible points of improvement for the current state of affairs. This is particularly relevant because the entry into force of tax treaties often takes a very long time in Belgium. In this context, Rik also notices that tax treaties do not have to be limited to income taxes and that it is indeed possible to conclude new tax treaties regarding, for example, inheritance taxes. Moreover, in the case of Flanders, this should even be easier and quicker than a "classic" tax treaty to which both the federal government, regions and communities must explicitly agree. Flanders is already capable of independently concluding its very own tax treaties regarding inheritance taxes, but also other regional taxes, including land taxes.

In general, the Belgian division of powers is a tangle, and it is no different for taxation. And since the competence to conclude treaties in Belgium depends on the subject of the treaty, that tangle also extends to tax treaties. In his doctoral thesis, Rik has unravelled this seemingly Gordian knot and formulated a number of conclusions and recommendations. Some of these conclusions are not very special, but others are both unexpected and striking. Hopefully, some of them will be picked up, so that not only the lead time for the entry into force of tax treaties will be shorter, but also that the theoretically sound Belgian regulation will become more pragmatic and benefit the Belgian economy and taxpayer. After all, that is one of the reasons why Belgium has built up such an extensive treaty network. Rik is now happy to put this specific expertise at the disposal of the Tiberghien firm and its clients.

Recently, Rik has received an honourable mention by the European Association of Tax Law Professors and the European Commission, at the occasion of the annual EATLP Doctoral Tax Thesis Award 2021.

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